Airasia Global Expansion

Problems associated with internationalisation

Technology advancements have made it substantially easier for organisations to access potential customers in international markets. Internationalisation is this tendency of organisations expanding overseas and operating in foreign markets. While potential benefits include increased consumers and greater profit margins, there are many issues that can arise when a company enters a foreign market. Many issues were encountered by Air Asia and include political barriers to trade, government intervention and cultural issues.

The Civil Aviation Ministry currently has a rule in place which is commonly referred to as the “5/20 rule”. This states that a domestic airline must have a fleet of 20 aircraft and operating experience of 5 years before it is able to travel international routes. The structure of Air Asia and its subsidiaries has led to a decrease in growth in Air Asia India, who deferred its expansion plan due to a lack of clarity surrounding the international flying rules.

Air Asia expansion into India initially was unsuccessful, with several problems cited in the withdrawal of Air Asia from many popular Indian routes. These issues include high airport costs, with many Indian cities not having a low-cost carrier terminal which allows Air Asia to save significant costs in Malaysia. The rising cost of fuel is a further reason that Air Asia has withdrawn flights along these routes. Fuel prices are determined via a multitude of factors including world supply and demand as well as refining capacity. A heightened awareness and concern over environmental protection has also led to stricter regulations over the refining process which has in turn increased the price of fuel production. With a low cost carrier such as Air Asia, any small fluctuation in the price in only one aspect of their operation costs can lead to it becoming unprofitable.

Cultural differences have hampered expansion into several nations, notably Japan and India. In both of these countries, airline bookings are done predominantly through travel agents. However Air Asia uses an online booking system, which account for 85% of their ticket sales, allowing them to save costs by not using agents. Air Asia also refused to alter their check-in system in these countries which has led to frustration from consumers as they have to check-in 45 minutes before departure despite other carriers having only 15 minute cut-offs.